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Don’t Throw Your Bond Portfolio Out the Window

May 9, 2022 By E.J. Smith

By natasaelena @ Shutterstock.com

Remember, as interest rates rise, you’re able to buy bonds at higher yields. We’re not that far from an interest rate level that will be a game-changer for retirees. I like this from Jason Zweig at The Wall Street Journal:

Thanks to the recent plunge in prices, the yield on the aggregate U.S. bond market, at about 3.6%, has doubled since Dec. 31.

People always chase the past with their money. Investors added more than $445 billion to bond funds in 2020, largely because past returns were so strong. But by the end of that year, the yield on the U.S. bond market had fallen to barely more than 1%—meaning that future returns were bound to be feeble.

Investors were too enthusiastic then. Maybe they’re too pessimistic now.

The single best predictor of the future returns of bonds, before inflation, is their yield to maturity. As prices fall, yields rise, so the recent rout in bonds has raised their expected returns.

Action Line: Don’t throw your bond portfolio out the window when there’s a little adversity. Keep in mind Your Survival Guy’s Capital Structure Pyramid, and see who gets paid first in times of trouble. It’s not stockholders. If you want to discuss how to improve your bond portfolio, let me know.

Originally posted on Your Survival Guy. 

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E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com

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